Costly information acquisition under horizontal competition

Author:  Qi Fu¡¢LI Yongquan¡¢Kaijie Zhu*
Publication:  Operations Research Letters
Abstract:  We analyze endogenous acquisition of costly information for two firms that sell homogeneous products. Prior to determining its production quantity, either firm has an opportunity to acquire a costly forecast. There exists a correlation between errors in the acquired forecasts. We model the problem as a two-stage game in which the firms first decide whether to acquire their respective forecasts and then decide their production quantities. We derive the equilibrium outcome on information acquisition and production quantity.
[Keywords]Information acquisition; Horizontal competition; Game theory